Card associations have strict rules and regulations regarding merchant convenience fees. Surcharges are absolutely prohibited! Charging customers for using credit cards in a retail situation could have your merchant account terminated.
Here are the mandates for charging a convenience fee (in a non-card present situation).
1. Disclosure of fee to customers.
2. Non-face to face transaction. Retail businesses cannot charge a convenience fee.
3. Flat or fixed amount, regardless of bill amount.
4. Fee is applied to all forms of payment accepted in the alternative payment channel.
5. Convenience fees cannot be added to recurring transactions.
6. Third party’s are barred from charging a convenience fee.
7. Customer’s must be given a chance to cancel the transaction prior to completion of transaction.
8. Convenience fees cannot be advertised as an offset to the cost of processing credit cards.
Retail merchants are clearly prohibited from charging convenience fees to customers. However, they are allowed to offer a cash discount to those customers paying with cash. The discount would be given to those customers paying with cash, and would be clearly disclosed as a “discount” compared to the regular price. Merchants offering cash discounts must be sure they are obeying all applicable laws and regulations.
Business owners are all too familiar with merchant account downgrades. These downgraded transactions cost more money to process, and are typically referred to as mid-qualified, or non-qualified transactions.
Transaction downgrades can occur for a variety of reasons, like failure to batch on-time, use address verification (AVS) on card-not-present transactions, or keying in a card present transaction. While these downgrades are due to improper operations and can be controlled (for the most part), other downgrades cannot be avoided; these are card type downgrades.
Here are the credit cards that will process at a higher rate.
Strict card association rules prohibiting payment card discrimination prevent merchants from refusing these cards. Doing so could result in a terminated merchant account file (TMF). Merchants may not be able to control card type downgrades, but knowledge of their existence can help merchants understand their monthly processing statement better. An understanding that can be used to reduce controllable merchant account downgrades.